Volkswagen: Why is it making drastic cuts to survive?
On July 9, 2026, outside the Volkswagen plant in Zwickau, Germany, an employee dressed as the Grim Reaper stood silently among a crowd of protesters. The photo spread rapidly across the globe, offering the world a stark visual sense of the upheaval this long-standing industrial giant is undergoing.
That same day, at the Wolfsburg headquarters, the group's supervisory board received a "Future Plan" restructuring proposal submitted by the management.
The proposal calls for cutting its vehicle lineup by up to 50%, reducing the complexity of optional configurations by 75%, and lowering the global annual production capacity target from 12 million units before the pandemic to 9 million units.
Moreover, according to internal sources, the management once attempted to push for a layoff plan affecting 100,000 employees and the closure of four factories in Germany.
Why has this automotive group, with annual sales approaching 10 million units and once regarded as the backbone of German industry, found itself forced to wield such a sharp knife against its own operations today? After cutting half of its model lineup, can it truly regain its rhythm and maintain competitiveness in the intelligent and electrified track?
In my view, Volkswagen's current predicament clearly stems from a rupture between its organizational genes rooted in the industrial era and the speed requirements of the digital age.
The 2026 restructuring plan is essentially a breakout forced by capital market pressure and internal governance deadlock. As for whether it can keep up with the times again, the key lies not in how many models are cut, but in whether the company has the courage to complete a crucial transformation from a hardware assembler to a software-defined system integrator.
Judging from the signals released so far, the prospects for this transformation are not optimistic.
Reforms Forced by Share Price Pressure
Many people attribute Volkswagen's predicament first to declining sales in the Chinese market or weak demand in Europe.
That is too naive and one-sided.
I believe these factors are more like the fuse that ignites the problems, rather than the deep-seated structural issues buried underground.
From the perspective of the financial market, Volkswagen has long been in a state of long-term denial, and this round of performance alarms has finally pushed the pressure to a critical point.
Looking at Volkswagen's share price trend, investor sentiment has been extremely cold.
Based on data around July 2026, the company's share price has returned to the level of summer 2010, with a cumulative decline of more than 30% since the beginning of the year, and the overall market value of the company has shrunk to about 38.6 billion euros.
What does this figure mean?
Toyota's market value is about five times that of Volkswagen. Even BYD, a Chinese new energy vehicle company, has long left Volkswagen behind in market value. Isn't it clear that the capital market has given such a low valuation to a giant enterprise with annual revenue exceeding 250 billion euros? Most investors do not recognize that the company's current business model can support future profit growth.
In finance, the share price is not a simple reflection of current sales, but the market's discounting of all expected future cash flows.
If an automaker can only sell a large number of cars but cannot demonstrate the monetization potential in areas such as software ecosystems, autonomous driving services, and energy businesses, it will lack the so-called "call option" value in the eyes of investors.
The high valuations of companies like Tesla and BYD are not only based on current sales figures, but also on the market's belief that these companies can generate sustainable, high-margin revenue through intelligent driving subscriptions, in-vehicle application ecosystems, battery technology exports, and other channels. The collapse of Volkswagen's valuation shows that the entire capital market has almost stopped offering premiums for its future possibilities.
These "profit-obsessed" entities have essentially determined that the company is still living in the old world of one-time hardware purchases.
This long-term slump in financial valuation has brought unbearable pressure to major shareholders. The Porsche-Piëch family's vast wealth is deeply tied to Volkswagen's share price, and the government of Lower Saxony's fiscal interests also depend on the stability and appreciation of its equity. When the share price falls by more than 30% from the beginning of the year and shareholders' assets evaporate by hundreds of billions of euros in just a few months, even the strongest political connections and the deepest union emotions must give way to financial reality.
In other words, the radical slimming plan accelerated in 2026 was not driven by the strategic vision of the CEO's office, but by the simultaneous pressure from both the balance sheet and equity market value.
It is the continuous rejection by the capital market that forces the management to come up with a sufficiently impactful cost reduction plan in a short period of time, to prove to the outside world that the company has the ability to maintain its profit bottom line.
Against this backdrop, the logic of cutting half of the models and reducing production capacity to 9 million units becomes very straightforward.
Over the years, Volkswagen has maintained an extremely extensive product matrix, ranging from entry-level small cars to ultra-luxury sports cars, from traditional fuel vehicles to various electric derivative models, with about 150 model series on sale across the group.
This level of diversity, while maximizing coverage of different consumer groups during market booms, has become a heavy burden of resource consumption amid slowing growth and rising R&D costs.
Especially in the Chinese market, Volkswagen's sales in the first quarter of 2026 fell by 20% year-on-year, directly dragging down the group's overall profit by 28% to 1.6 billion euros. When the largest profit engine begins to stall, inefficient models in the product line quickly change from "tolerable diversity" to "unbearable cost loopholes".
The decision to make large-scale model cuts at this time is less of an active strategic optimization than an urgent hemostatic measure that must be taken.
Fragile Software Foundation: The Reality Behind Model Cuts
From a market perspective, cutting half of the models and reducing configuration complexity by 75% is a standard practice for manufacturing enterprises to control costs and focus on high-profit market segments.
But technically, it reveals a more awkward internal reality behind Volkswagen's drastic product contraction: its software system is simply unable to effectively support the diverse product matrix it once took pride in.
Over the past decades, the electronic systems of traditional cars have basically consisted of dozens or even hundreds of independent controllers, each responsible for a specific function, such as window lifting, engine management, and light control. These controllers come from different suppliers, run their own independent software, and have little communication requirements with each other. The core task of automakers is hardware integration and quality testing.
The new architecture of the intelligent electric vehicle era, however, centers on a few or even a single central computing platform, connecting all electronic components of the vehicle through regional controllers.
This centralized architecture allows vehicle functions to be continuously iterated through over-the-air upgrades, just like mobile phone system updates.
It is precisely based on this capability that Tesla and a number of Chinese new energy vehicle manufacturers have been able to continuously launch new assisted driving functions, interactive experiences, and application services.
Volkswagen saw this trend years ago, and established a software subsidiary called CARIAD for this purpose, planning a scalable system platform SSP for next-generation models, hoping to unify the electronic architecture of all major brands under the group.
According to the original schedule, SSP was supposed to be put into mass production in 2026, providing a digital foundation for subsequent mass-market models.
However, according to some foreign media reports, due to bottlenecks in software integration, the SSP platform has been delayed until 2027 or even 2028 to be used for high-end Audi models, while Volkswagen brand's core mass-market products will not be ready until 2029.
This directly leads to a serious consequence: key models supporting future revenue, such as the all-electric Golf, have been forced to postpone their launch, leaving the company to rely on its aging existing platforms to compete with rivals.
Moreover, Volkswagen and Bosch once announced a high-profile partnership in 2022 to develop autonomous driving technology, with an investment of up to 1.5 billion euros. But investigations by German media show that the project was on the verge of being shelved in 2026, and Volkswagen is seeking new partners.
The collapse of such a costly technology alliance reflects the huge gap between the company's software development goals and actual output.
When the pace of internal technological advancement fails to meet expectations, continuing to maintain an extensive model lineup and configuration options becomes a disaster. Because every configuration combination of every model means testing, adaptation, and subsequent maintenance on its electronic architecture.
With limited software capabilities, the more models and the more complex the configurations, the greater the risk of delays and defects.
As a result, the "half-model cut" seen by the public is only the tip of the iceberg above the water.
The harsher logic beneath the surface is that Volkswagen's software team can no longer bear the extensive product line inherited from the industrial era. Reducing physical diversity essentially lightens the burden on that slow-developing "digital brain".
An engineering culture that pursues precision, one-shot molding, and progress in a strict linear order has exposed serious mismatches when facing digital product development that requires rapid trial and error, data-driven approaches, and separate software and hardware iterations.
This restructuring has precisely externalized this technical inadaptability into the contraction of the product lineup.
This shows that the fundamental problem plaguing Volkswagen is not that there are too many models, but that the speed at which it builds its intelligent digital platform is far from supporting its original business scale.
After Stopping the Bleeding, How Far Is Regeneration?
Volkswagen's predicament, besides the two dimensions of financial valuation and software capabilities, also has an equally thorny problem: its unique corporate governance structure is significantly slowing down the pace of transformation.
This institutional friction determines whether it has the opportunity to truly gain new vitality after stopping the bleeding.
Unlike other global automakers, Volkswagen has long operated a co-determination model at the decision-making level.
Labor representatives occupy half of the seats on the supervisory board, and the government of Lower Saxony holds 20% of the voting rights and has veto power over key matters. This arrangement was once a model of Germany's social market economy, providing strong internal unity for Volkswagen's stable expansion after World War II.
However, when transformation requires rapid cost reduction, factory closures, and reorganization of development teams, this consensus-oriented structure evolves into huge internal resistance.
The supervisory board meeting in July 2026 fully reflected this contradiction: the management's plan to close four German factories and lay off 100,000 employees was not approved due to strong opposition from trade unions.
The IG Metall union even temporarily gained a relative majority of ten votes on the supervisory board following the resignation of a management representative, giving it the ability to technically veto management proposals.
History offers precedents: successive CEOs from Bernd Pischetsrieder to Herbert Diess clashed violently with trade unions due to forceful reform pushes, and eventually left disappointingly.
Therefore, the currently announced large-scale model cuts and production capacity reduction plans are, to some extent, a political detour strategy. It does not directly touch the most sensitive fuse of "closing German factories", but gradually reduces excess manufacturing capacity by cutting product lines, lowering configuration complexity, and adjusting production capacity targets.
Once some factories' capacity utilization continues to decline due to the lack of new model introductions, factory closures may enter the agenda in a "natural" way, rather than erupting all at once in a fierce confrontation. This snail-like gradual pace is politically sophisticated, but fatal in market competition.
While Chinese competitors launch brand-new electric models in cycles of 12 months or even shorter, Volkswagen needs to spend a lot of energy internally persuading various stakeholders to reach some kind of compromise.
No company can withstand this speed gap for long.
To make up for its shortcomings in software capabilities, Volkswagen has chosen to leverage external partners.
The joint venture with Rivian means that some Audi and Porsche models in the future will use the electronic and electrical architecture and software stack from the American startup, while the Snapdragon platform cooperation with Qualcomm covers new-generation Volkswagen brand models such as the ID.EVERY1.
External procurement and joint development can quickly fill functional gaps, but there is a non-negligible cost: core software-defined capabilities are increasingly slipping out of its own hands. When the key to vehicle differentiation no longer comes from engines and transmissions, but from interactive experiences and autonomous driving algorithms, losing control over the software platform means that the foundation of brand premium will be continuously eroded. This pressure is particularly prominent for high-end brands such as Audi and Porsche.
In the Chinese market, Volkswagen has already realized the severity of the problem.
In the first half of 2026, the group still delivered 971,000 new cars in China, ranking among the top three in overall sales, with its fuel vehicle market share remaining above 22%.
But behind this achievement, the basic market of traditional fuel vehicles is being compressed as a whole, while new energy products have not yet established a sufficiently strong alternative force. Volkswagen is accelerating localized R&D, relying on the CMP platform and CEA electronic and electrical architecture, and plans to launch more than 20 new energy models within the year.
The judgment seems quite clear: in the Chinese market, it is necessary to deeply integrate into the local technology ecosystem to maintain its scale.
The related concern is that if this localization eventually evolves into a situation where the brand mainly relies on Chinese partners to provide electronic architecture and autonomous driving solutions, while its European headquarters still maintains another relatively closed and slow-progressing system, the company will eventually show not unified upgrading, but regional fragmentation.
In that case, by the 2030s, the Volkswagen Group will likely present two completely different faces.
In Europe and parts of the North American market, it will continue to use trade barriers, brand heritage, and relatively conservative consumer habits to maintain the status of a regional strong player.
After streamlining the product line, the profit situation will be somewhat restored, but its products will still lag significantly behind the global top tier in terms of intelligence. In the Asia-Pacific market represented by China, Volkswagen may transform from a comprehensive market leader in the past to a participant that relies more on local technology partners for integration and OEM.
The product shells will still bear the Volkswagen or Audi logos, but the internal electronic soul will be mainly supplied by local forces.
The technical synergy between these two "Volkswagens" will become weaker and weaker, and the group's economies of scale will be continuously eroded.
This fragmented survival pattern can stop the bleeding and buy the company a window of respite, but it can hardly be called truly keeping up with the rhythm of the times.
Keeping up with the rhythm means completing the leap from a traditional hardware integrator to a software-defined system integrator, and establishing a continuously iterating digital infrastructure for all product lines. The path Volkswagen is currently taking is more like a forced structural contraction under external heavy pressure.
Between the lines of the restructuring plan, what is revealed is not confidence in cutting-edge technology, but the determination to resolutely cut down the once complex system. This determination deserves recognition, but there is still a very long way to go before it can recreate a new organizational gene that can lead the industry direction.
This article is from the WeChat public account "Dongzhen Strategy", written by Dongzhen Strategy, and published with authorization by 36Kr.